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Composition Scheme is a simple and easy scheme under GST for taxpayers. Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. This scheme can be opted by any taxpayer whose turnover is less than Rs. 1 crore*.

1. Why was Composition Scheme introduced?

The GST regime has brought in many changes along with the following:

  • Increase in the number of GST returns
  • Payment of tax on a monthly basis

Small and new taxpayers will find it difficult to comply with so many rules.

Hence, the government has introduced the concept of Composition Scheme.

Now there is an option for small and new taxpayer to opt for Composition scheme and have lesser compliance.

Also, a taxpayer opting for composition scheme has to pay tax at a nominal rate.

2. Who can opt for Composition Scheme

A taxpayer whose turnover is below Rs 1 crore* can opt in for Composition Scheme. In case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75* lakh.

 

*Latest update as per 22nd GST Council Meeting held on 6th Oct 2017

Threshold for composition scheme has been increased to 1 crore (from earlier 75 lakhs)

3. Who cannot opt for Composition Scheme

The following people cannot opt for the scheme:

  • Supplier of services other than restaurant related services
  • Manufacturer of ice cream, pan masala, or tobacco
  • Casual taxable person or a non-resident taxable person
  • Businesses which supply goods through an e-commerce operator

4. What are the conditions for availing Composition Scheme?

The following conditions must be satisfied in order to opt for composition scheme:

  • No Input Tax Credit can be claimed by a dealer opting for composition scheme
  • The taxpayer can only make intra-state supply (sell in the same state) i.e. no inter-state supply of goods.
  • The dealer cannot supply GST exempted goods
  • Taxpayer has to pay tax at normal rates for transactions under Reverse Charge Mechanism
  • If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
  • The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.
  • The taxpayer has to mention the words ‘composition taxable person’ on every bill of supply issued by him.

5. How can a taxpayer opt for composition scheme?

To opt in for composition scheme a taxpayer has to file Form GST CMP-01 or GST CMP-02 with the government. This can be done online after logging into the GST Portal.

This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme.

Here is a PDF format prescribed by the government of India for registering as a composition dealer – Intimation to pay tax under Section 10

6. What documents should a composition dealer issue while making supply?

A composition dealer cannot issue tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay tax out of their own pocket.

Hence, the dealer has to issue a Bill of Supply.

The dealer should also mention “composition taxable person, not eligible to collect tax on supplies”  at the top of the Bill of Supply.

7. What are the GST rates for a composition dealer?

GST Composition Scheme

8. How should GST payment be made by a composition dealer?

GST Payment has to be made out of pocket. It means that a dealer opting for Composition Scheme cannot charge GST in their Invoice. The consumer/ the receiver of supplies will not be liable to pay GST to the supplier who has opted for Composition Scheme.

9. What are the returns to be filed by a composition dealer?

A dealer is required to file a quarterly return GSTR-4 by 18th of the month after the end of the quarter. Also, an annual return GSTR-9A has to be filed by 31st December of next financial year.

Also, note that a dealer registered under composition scheme is not required to maintain detailed records.

*Latest update:

As per 22nd GST Council Meeting held on 6th Oct 2017

Due date of FORM GSTR-4 for the quarter July-September, 2017 is extended to 15.11.2017

10. What are the advantages of Composition Scheme?

The following are the advantages of registering under composition scheme:

  • Lesser compliance (returns, maintaining books of record, issuance of invoices)
  • Limited tax liability
  • High liquidity as taxes are at a lower rate

11. What are the disadvantages of Composition Scheme?

Let us now see the disadvantages of registering under GST composition scheme:

  • A limited territory of business. The dealer is barred from carrying out inter-state transactions
  • No Input Tax Credit available to composition dealers
  • The taxpayer will not be eligible to supply goods through an e-commerce portal

Here is a video to understand about composition scheme under GST

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  1. Let us look at chapter 2 of CGST rules - Composition Rules. This text is taken from cgst-rules-01july2017.pdf.
  2. Composition Scheme Rules under GST w.r.t. intimation for Composition Scheme, effective date for levy, conditions and restrictions, validity and rate of tax.
  3. Switching from composition scheme to normal tax payer under GST will attract Composite Scheme GST Transition Provisionwill be allowed credit of duties
  4. All your Queries under Composition Scheme Answered Here
  5. To help small businesses avoid the hassles of GST, the Model GST law has proposed a simpler levy. This levy is called Composition Levy.
  6. Reasons why you should avoid registering as a taxpayer under composition scheme.
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